Report: Policymakers Should Use Combination Of New Policies, Tools To Regulate ‘Unbundled’ Higher Ed Models

Quick Takeaways:

“Unbundled” models of higher education offer students more flexibility and customization for their learning objectives, though there are concerns among policymakers about the role federal financial aid should or can play in providing access to these new models of learning.

A combination of regulatory approaches and tools can be used to give students access to these models, while at the same time protecting consumers and taxpayers, including increasing transparency, incorporating private financing, and letting the market drive innovation.

Though many recommendations could be implemented on their own, it would be better to experiment with a combination of recommendations and tools.

The rise of “unbundling” in higher education provides policymakers with the opportunity to experiment with new approaches to regulating higher education and financial aid policy, according to a new report from the American Enterprise Institute (AEI).

“Unbundling,” as it is used in the report, refers to the growing trend of offering the components of a postsecondary degree or certification – such as stand-alone courses or series of courses – at much lower costs than traditional higher education institutions. These models also offer students more flexibility and customization for their learning objectives, though there are concerns among policymakers about the role federal financial aid should or can play in providing access to these new models of learning.

In the report, AEI argued that a combination of regulatory approaches and tools can be used to give students access to these models, while at the same time protecting consumers and taxpayers. Among the group’s suggestions are reforms to the federal approach to quality assurance, new ways policymakers can utilize private funding methods, and a pathway to allowing consumer demand and competition to drive innovation.

AEI recommends allowing these new higher education providers access to federal financial aid in the Title IV programs and suggests three tactics to help maintain accountability and transparency:

Increase transparency around prices and outcomes by requiring that providers collect and publish data on outcomes and costs. This will ensure that students have sufficient information on providers’ quality, and therefore can gauge whether the cost is worth the outcome, when making enrollment decisions.

Use a “chartering model” similar to the charter school model for K-12 education to approve certain higher education providers. Under this model, the Department of Education (ED) could recognize third-party organizations to serve as independent authorizers for these new programs and providers, with approval being based on criteria like financial solvency, student outcomes, and employer and student satisfaction.

Create a quality-value index for new providers, which would open a path to student aid based on labor market outcomes and student satisfaction relative to an institution’s total expenditures.

The second recommendation in the report is for policymakers to leverage private financing to share the risk in quality assurance. “Specifically,” AEI noted in the report, “requiring providers and students to raise some of their own financing from the private market would rely on private investors to ferret out the most valuable provider and models and steer taxpayer dollars toward those options.”

To accomplish this recommendation, AEI suggests policymakers require new providers to cover the upfront costs of their offerings to be eligible for federal aid, and use a “pay for success” model that would allow them to be reimbursed based on their success.

“The key insight here is that a system that requires new entrants to put up capital gives providers greater ‘skin in the game’ than one in which they get full access to government money,” AEI said in the report.

AEI also suggested that policymakers create a space for private financing, such as income-share agreements, in addition to need-based grants that students can use to access unbundled higher education programs.

Finally, AEI recommended that policymakers “wait for the market to mature on its own and let consumer demand and competition drive innovation.”

Though each recommendation could be implemented on its own, AEI argues that it would be better to experiment with a combination of recommendations and tools.

“No one tool will be a magic bullet, and pushing for a comprehensive reform to the eligibility rules governing federal student aid programs would be a mistake at this early stage,” AEI said in the report. Rather, policymakers should “experiment with these different approaches and tools and mix and match them to learn about the strengths and weaknesses of each,” the group noted.

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